Is it possible to create futures spread on the same contract?

joey123 · #1 14th January 2008, 11:50 PM

Hi friends, I am new comer in futures trading.

Lets say if I buy (long) january contact at one rate say 1000 and sell (short without squaring off) the same contract at 1100 on the same date, What margin will be applicable?

1) seperate margins for both the contracts ?

OR

2) Spread margin (which in most of the cases is just 6%)?

rajsingh · #2 15th January 2008, 07:22 AM

Why the confusion? Your open position eod would be 0. Only margin for 1 contract is applicable.

U would not be short since the sell would be considered square off.

rambharosey · #3 15th January 2008, 09:32 AM

Quote:

Originally Posted by rajsingh

Why the confusion? Your open position eod would be 0. Only margin for 1 contract is applicable.

U would not be short since the sell would be considered square off.

Raj, I think the basic doubt of the original poster is: can I hold an open long position and an open short position (for say 'xyz' shares expiring on say Jan 31st) 'simultaneously' or will my short position automatically close my long position?

I have the same doubt. Can you please clarify.

rajsingh · #4 15th January 2008, 10:35 AM

Not for the same contract.

Possible for different months contracts. Eg. long jan contr and short feb contr.

Cheers

joey123 · #5 15th January 2008, 05:40 PM

Rambharosey's doubt is a valid one. That is what I was asking. If I am holding one "long" contract" at one strike price (say 1000) and I have no intention to square it off. I am also short on the same contract at higher strike price (say 2000).

(Please note that here I have two open positions: 1long and 1 short and I have not squared off any of them.) The advantage of this kind of situation is that you will lock will you profits (in this case cool Rs 1000 per day ) till the contract ends (on last thursday of the month). I want to know whether this kind of situation is possible or not ?

What RajSingh is saying is that the moment we create "short " position on the contract (on which we are already long) , the system will automatically treat it as a square off.

I would request Raj to clarify once again that this is the case because in icicidirect "square off" appears against executed long position. My perception is that the system should treat the two contracts seperate with margin on the spread created.

I request Raj and Rambharosey to throw some more light on this.

thimma · #6 15th January 2008, 06:06 PM

What do you mean a strike price for futures? It's only for options.
Futures trading is almost like shares but with a expiry date, large number of shares and margin.

rajsingh · #7 15th January 2008, 06:11 PM

Yup , I was talking about futures. Unless you specify your position exactly I dont see how I can help.

Eg: If ur long nifty at 6000 and u sell at 6100 same contract ur position is flat. No open position.

However if u sell the next months contract that would be treated as a short.

Also note in this case what u are gaining on one position u are loosing on the other. Right mate.

No pain No gain

joey123 · #8 15th January 2008, 06:40 PM

I agree with you when you said that the position is flat. But the returns are assured till the expiry of the month (assuming the sytem is not treating squared off case).

But the moment system squares off , positions are closed and returns are not assured for the rest of the month.

Have you ever tried such stuff?

rajsingh · #9 15th January 2008, 06:46 PM

What returns ? As I have said earlier if your long gains your short looses and vice versa.

joey123 · #10 15th January 2008, 06:59 PM

Strike prices are different.

Long on Rs 1000 (say NTPC-31st Jan)
Short on Rs 1500 (same contract NTPC-31st Jan)

Profit = 1500 - 1000 = 500